July 17, 2006	Monday	Jumadi-ul-Sani 20, 1427

THE rupee’s weakness in the local currency market persisted on high demand for the US and European currencies this week. Bearish sentiment prevailed in the currency market on July 10, as dollars’ demand by the corporate sector was high.

Another, leading factor was the international market’s closure which dried up the supply of dollar. The rupee shed two paisa against the dollar in the inter-bank market, changing hands at Rs60.28 and Rs60.30, after closing last week at Rs60.26 and Rs60.28.

The rupee’s weakness versus the dollar persisted on July 11, though it suffered only a marginal decline over its previous day’s levels closing the day at Rs60.28 and Rs60.29, down two paisa for buying and one paisa for selling. Persisting demand for dollars forced the banks to buy greenback to meet the short-term demand on July 12. The rupee continued its downtrend versus the dollar in the inter-bank market, slipping one paisa to trade at Rs60.29 and Rs60.30.

The rupee held its overnight firmness, as dollars’ supply was enough to meet the demand on July 13. It managed to maintain its overnight level versus the dollar for buying at Rs60.29, while losing one paisa at Rs60.31 for selling. On July 14, balanced demand and supply helped the rupee to maintain its firmness. The rupee remained unchanged versus the dollar and traded at its overnight levels of Rs60.29 and Rs60.31.

During the week in review, the rupee in the inter-bank market showed only three paisa decline versus the dollar. However, over the corresponding weekend last year, when the rupee in the inter bank market was quoted at Rs59.58 and Rs59.60, the rupee this week was lower by 71 paisa.

On the opening day of the week in review, the open market suffered five-paisa decline in the rupee value versus the dollar. As a result the rupee on July 10 traded at Rs60.60 and Rs60.65 compared to last weekend’s levels of Rs60.55 and Rs60.60. On July 11, the rupee extended its overnight fall versus the dollar on rising demand by banks, shed seven paisa to trade at Rs60.67 and Rs60.72. The rupee thus lost nearly 12 paisa in first two days of the week in review. The rupee continued its decline versus the dollar in the open market on July 12, when it lost three paisa more, trading at Rs60.70 and Rs60.75 due to high demand for the greenback for the third day in a row.

On July 13, the rupee extended its weakness versus the dollar and fell by another two paisa, changing hands at Rs60.72 and Rs60.77. On July 14, the rupee managed to recover grounds versus the dollar and gained two paisa changing hands at Rs60.70 and Rs60.75. Over the previous week, the rupee in the open market lost 15paisa versus the dollar this week. Compared to the corresponding week last year, it showed ten paisa fall this week. Last year the rupee/dollar parity was at Rs60.45 and Rs60.50.

Versus the European single common currency the rupee continued its weakness during the week in review. On the opening day, it lost ten paisa and traded at Rs77.29 and Rs77.39 versus the euro on July 10 against the last week’s close of Rs77.19 and Rs77.29. On July 11, however, it managed to gain 34 paisa and traded at Rs76.95 and Rs77.05. But the rupee’s overnight strength versus the euro proved short lived, as on the following day it fell by 30 paisa, when it was seen trading at Rs77.25 and Rs77.35 on July 12.

The rupee lost 17 paisa more versus the euro on July 13, when it traded at Rs77.08 and Rs77.18 due to slight fall in the international markets. On July 14, the rupee managed to recover 15 paisa versus the euro, which was quoted at Rs76.73 and Rs76.83. However, the rupee managed to recover 46 paisa versus the euro this week. Over the corresponding week last year, the rupee depicted a fall of Rs3.78. two months back, the rupee was at Rs73.05 and Rs73.20 versus the European single common currency.

In the international financial markets, the yen hovered at a two-week high against the euro and was within striking distance of a one-month high against the dollar on July 10, as investors anticipated the Bank of Japan will raise rates for the first time in nearly six years. An early yen rally stalled midway through the New York session, however, particularly against the dollar, as investors waited to see what the Japanese central bank will signify for the future when it concludes its two-day monetary policy meeting this weekend.

The dollar was up 0.1 per cent at 114.17 yen late in New York with the yen’s advance stalling after earlier touching 113.31 to the dollar. The euro was down 0.4 per cent against the yen at 145.43 yen, around levels last seen in late June and well off the record highs around 147.41 yen, according to Reuters data, hit last week. The euro had dipped as low as 144.99 yen earlier in the day. The euro was down 0.6 per cent against the dollar at $1.2736 off a one-month peak of $1.2861. Sterling was down 0.5 per cent at $1.8413 in its largest one-day fall in three weeks. The dollar gained 0.6 per cent against the Swiss franc to trade at 1.2300 francs.

The dollar fell on July 11, as investors adjusted positions ahead of the release of data expected to show a higher US trade deficit for May. The Department of Commerce is expected to report that the US international trade deficit widened to $64.9 billion in May from April’s $63.4 billion shortfall. That would be the widest since a $66.2 billion shortfall in January. The euro zone single currency was 0.3 per cent higher against the dollar at $1.2771.

The dollar was down 0.1 per cent against the yen at 114.18 yen, having hit a one-month low of 113.31 yen on July 10, while the euro was up 0.3 per cent against the Japanese currency at 145.87 yen. The dollar was also hurt against the yen by expectations by most investors that Japan will raise interest rates for the first time in six years and put an end to its policy of zero interest rates, which should keep the yen on a firm footing. Sterling was up 0.3 per cent against the dollar at $1.8465. The dollar fell 0.4 per cent against the Swiss franc to 1.2254 Swiss francs.

On July 12, the dollar rallied broadly after news the US trade deficit expanded less than expected in May. The greenback’s biggest gains were against the yen. The Japanese currency was hurt by remarks by the Japanese finance minister, which raised concerns that the Bank of Japan may not raise interest rates this week as much as initially expected. This week, the yen had risen to one-month highs against the dollar and three-week highs on the euro.

In New York, the dollar was up 1.1 per cent at 115.48 yen, its best one-day advance in three weeks. At its session high the dollar was posting its biggest one-day gain in percentage terms since January 2005. The euro rose 0.5 per cent on the Japanese currency to 146.68 yen but fell 0.6 per cent against the dollar to $1.2699. Sterling hit a 1-1/2 week low against a broadly firmer dollar as the greenback rallied across the board after data showing a smaller-than-expected widening in the US trade gap. It had fallen to $1.8312, down 0.8 per cent on the day. Against a broadly weaker euro sterling hit a two-week high of 68.96 pence before trimming gains to 69.22 pence.

On July 13, the dollar slipped against most other major currencies amid safe-haven buying as global tensions escalated and ahead of an expected Bank of Japan interest rate increase, the first in six years. Israel’s bombing of Beirut airport in retaliation for a barrage of rockets fired into its territory, the collapse of talks between South and North Korea over a missile crisis, and tensions between Western powers and Iran over Tehran’s nuclear programme all encouraged flows into safe-haven assets like the Swiss franc, the US Treasuries and gold.

In New York, the dollar was down 0.3 per cent against the Swiss franc at 1.2296 francs, having fallen as low as 1.2276 francs. Sterling was up 0.5 per cent against the dollar at $1.8435. The euro was down 0.1 per cent on the day against the dollar at $1.2689, and posted heavier losses against the Swiss franc at 1.5606 francs and sterling at 68.82 pence. The yen was still firm after the first of two days of Bank of Japan policy talks. The dollar last traded at 115.37 yen, down 0.1 per cent from the prior New York session. Some analysts expect the dollar yen to move higher against the yen.

At the close of the week on July 14, the yen slipped back towards a two-week low against the dollar after the Bank of Japan said interest rates can be kept low for some time after a widely expected increase from zero, the first in six years. The BoJ unanimously voted to lift overnight rates to 0.25 per cent, ending an era of zero rates aimed at pulling the economy out of its decade-long stagnation and fighting off deflation. Markets are generally looking for the BoJ to lift rates once more this year to 0.5 per cent and possibly to 0.75 per cent by the end of the current business year.

The dollar was up nearly half a per cent at 115.90 yen, just off the two-week high of 116.12 yen struck before the BoJ decision on electronic trading platform EBS. The Japanese currency had hit a one-month high of 113.45 yen on EBS earlier in the week. The euro was up half a per cent at 147.05 yen, in sight of the record high of 147.42 yen hit last week on EBS. The euro was little changed at $1.2690, well off a one-month high of $1.2865 touched last week. Japanese financial markets will be closed for a holiday on July 17.

Sterling fell against the dollar, as the US currency swept broadly higher, but analysts said the pound could get near-term support on geopolitical jitters. It was down a third of a per cent against the dollar at $1.8376. The pound traded at 68.85 pence versus the euro, down 0.10 per cent after touching a two-week high at 68.79 pence on July 13.